At a Glance

HEG Ltd, the graphite electrode king, dropped Q1 FY26 results that scream “we’re alive, but barely flexing.” Revenue stood at ₹617 Cr (+7.9% YoY), PAT bounced to ₹105 Cr from last quarter’s loss, and OPM climbed back to 17%. With a ₹650 Cr capex to add 15,000 TPA capacity, management is betting on an EAF steel boom. Stock trades at ₹534 (52x P/E), making investors wonder: is this a growth story or a nostalgia act?

Introduction

Remember when HEG’s profits once rivaled steel companies during the 2018 graphite supercycle? Fast forward to 2025, and the company has been dancing between profits and losses like a reality TV contestant. Q1 FY26 brings some sunshine, but structural issues—low ROE (2.6%), volatile margins, and dependence on steel industry cycles—continue to haunt the company. Add in the latest ₹650 Cr capex and you’ve got a cocktail of hope and risk.

Business Model (WTF Do They Even Do?)

HEG manufactures graphite electrodes—a critical consumable for Electric Arc Furnaces (EAFs) used in steelmaking.

• Products: Ultra High Power (UHP), High Power (HP), Super High Power (SHP) electrodes.
• Clients: Global steel manufacturers using EAF technology.
• Revenue Drivers: Prices of graphite electrodes (linked to steel demand) and capacity utilization.
• Barriers: High technology requirements and few global players (Graphite India, Showa Denko).

Simple model: if steel booms → HEG smiles; if not, margins vanish.

Financials Overview

Profit rebounded sharply, thanks to better pricing and cost control. But the overall margin story is still shaky.

Valuation

1. P/E Method:
   • EPS (TTM) ≈ ₹10.2
   • Sector P/E ≈ 25x
   • Fair Value ≈ ₹255
2. P/B Method:
   • BV ≈ ₹231
   • Sector P/B ≈ 2x
   • Fair Value ≈ ₹462
3. DCF (Quick):
   • Assumes 8% growth, WACC 12%
   • FV ≈ ₹400–500

👉 Fair Value Range: ₹400–500. At ₹534, the stock is slightly ahead of fundamentals.

What’s Cooking – News, Triggers, Drama

• Capacity Expansion: ₹650 Cr for 15,000 TPA new capacity—bets on demand revival.
• GST Relief: Show cause notice of ₹282 Cr dropped—phew!
• Market Tailwind: Rising global EAF steel share supports graphite demand.
• Risks: Chinese overcapacity, high input costs, and cyclicality.

Balance Sheet

Roast: Borrowings are low—good—but ROCE (4%) shows assets are sitting lazy.

Cash Flow – Sab Number Game Hai

Comment: Positive ops cash, but declining—Capex coming will drain more.

Ratios – Sexy or Stressy?

Roast: Valuation is rich; returns are poor. Investor faith > financial logic.

P&L Breakdown – Show Me the Money

Roast: Sales stagnated; profits nosedived. Q1 FY26 is a mild recovery.

Peer Comparison

Roast: HEG trades at the highest P/E with the lowest returns. Optimism overdose?

Miscellaneous – Shareholding, Promoters

• Promoters: 55.8% (steady)
• FIIs: 7.3%
• DIIs: 11.6%
• Public: 25.3%

Promoter stake is solid; institutional interest remains lukewarm.

EduInvesting Verdict™

HEG’s Q1 FY26 shows signs of revival, but the story remains cyclical. Expansion is bold, yet risky in a market dominated by Chinese players. Valuations (52x P/E) price in a big turnaround that hasn’t materialized yet.

SWOT Analysis

• Strengths: Market leader, integrated plant, low debt.
• Weaknesses: Low ROE, margin volatility, dependence on steel.
• Opportunities: Global shift to EAF steel, capacity addition.
• Threats: Price wars, raw material volatility, cyclic downturns.

Final Word: HEG is like a retired rockstar staging a comeback tour. The tunes are improving (Q1 profit), but investors must brace for ups and downs.

Written by EduInvesting Team | 30 July 2025
SEO Tags: HEG Ltd, Graphite Electrodes, Q1 FY26 Results, Capacity Expansion